Encore Wire Corporation
Q2 2010 Earnings Call Transcript

Published: 30 Jul 2010

[Operator:]

Welcome to the Encore Wire Second Quarter Earnings Conference Call. As a reminder all lines will be on listen-only mode. There will time for question, answer at the end of the call. (Operator Instructions). I will now turn the call over to Daniel Jones, President and CEO of Encore Wire. Go ahead please.

[Daniel Jones:]

Hey, thank you Steven. Good morning ladies and gentlemen, welcome to the Encore Wire Corporation quarterly conference call. I Daniel Jones, the President and Chief Executive Officer of Encore Wire. With me this morning is Frank Bilban, our Chief Financial Officer. We are pleased to be able to announce strong quarterly earnings in the midst of the severe recession currently taken place in the construction industry as we repeatedly now that the key metric to our earnings is the spread from the price of wire sold and the cost of raw copper. The spread increased 35.7% in the second quarter of 2010 versus second quarter of 2009. While our unit volume shipped in the second quarter of 2010 increased 2.3% versus second quarter of 2009. The spread increased 14.7% on a sequential quarter basis, while our unit volume increased 34.1%. This sequential quarterly comparisons are particularly encouraging. We believe the sequential trends are due to several factors. In the first quarter of 2010 we posted our lowest unit sales in over decade. We believe this was due not only to the construction and building wire recession in United States. But also due to the fact that a former competitor was purchased and liquidated their remaining wire inventory during the first quarter at extremely low prices. We elected not to match these price levels negatively impacting our unit volume in the first quarter. In the second quarter the building wire industry exhibited improved pricing discipline favorably impacting our spreads and allowed our unit volume to return to what we believe maybe more normal levels. We continue to strive to support industry price increases to maintain the momentum started during the past quarter. We believe we our superior order field rates continue to enhance our competitive position as our electrical distributor customers are holding very lean inventories in the field. As orders come in from electrical contractor, the distributor can count on our order field for rates to ensure quick deliveries from cost to cost. We've been able to accomplish this despite holding what historically lean inventories for us. We believe our performance has impressed the Venus economy. And we think our employees and associates show tremendous efforts. We also thank our shareholders or the continued support. Frank Bilban, our Chief Financial Officer will now discus our financial results. Frank?

[Frank Bilban:]

Thank you, Daniel. In a minute we will review Encore's financial results for the quarter. After the financial review we will take any questions you may have. Each of you should have received a copy of Encore's press release covering our financial results. This release is available on the Internet or you can call Dennis Lewis at 800-962-9473 and we will give you a copy. Before we review the financials, let me indicate that in these initial comments and in the question-and-answer period that follows, we may make certain statements that might be considered to be forward-looking. In order to comply with certain securities legislation, and instead of attempting to identify each particular statement as forward-looking, we advise you that all such statements involve certain risks and uncertainties that could cause actual results to differ materially from those discussed here today. I refer each of you to the company's SEC reports and news releases for a more detailed discussion of these risks and uncertainties. Also, reconciliations of non-GAAP financial measures discussed during this call to the most directly comparable financial measures presented in accordance with GAAP including EBITDA, which we believe to be useful supplemental information for investors are posted on www.encorewire.com. Now for the financial results. Net sales for the second quarter ended June 30, 2010 were $236.1 million compared to $159.4 million during the second quarter of 2009. Higher prices for building wire sold in the quarter ended June 30, 2010 accounted for most of the increase in net sales dollars, increasing 44.9% per copper pound sold versus the same period in 2009. Sales prices rose primarily due to higher copper prices. Unit volume in the second quarter of 2010 increased 2.3% versus the second quarter of 2009. Net income for the second quarter of 2010 increased 1,256.5% to $8.1 million versus $600,000 in the second quarter of 2009. Fully diluted net earnings per common share was $0.35 in the second quarter of 2010 versus $0.03 in the second quarter of 2009. Net sales for the six months ended June 30, 2010 were $411.3 million compared to $303.8 million during the same period in 2009. Higher prices for building wire sold in the six months ended June 30, accounted for the increase in net sales dollars, increasing 59.2% per copper pound versus the same period in 2009. Unit volume in the six months ended June 30, decreased 14.9% versus the same period in 2009. Net income for the six months June 30, 2010 was $5.7 million versus $5.2 million in the same period in 2009. Fully diluted net earnings per common share were $0.24 of the six months ended June 30, 2010 versus $0.22 in the same period in 2009. On a sequential quarter comparison net sales for the second quarter of 2010 were $236.1 million versus a $175.2 million during the first quarter of 2010. Unit volume increased 34.1% on a sequential quarter comparison. Net income for the second quarter of 2010 was $8.1 million versus a loss of $2.5 million in the first quarter of 2010. Fully diluted net income per common share was $0.35 in the second quarter of 2010 versus a loss of $0.11 in the first quarter of 2010. Our balance sheet remain strong. We have no long-term debt and our revolving line of credit is paid down to zero. In addition, we have $90.5 million in cash as of June 30, 2010. We also declared another quarterly cash dividend during the second quarter of 2010. We want everyone to know that this conference call will be available for replay after the conclusion of this session. If you wish to hear the tape to replay, please call 8066-551-4520 and enter the conference reference 265319 and the pound sign. I'll now turn the floor back over to Daniel, our President and CEO. Daniel?

[Daniel Jones:]

Thank you, Frank. Steven, we'll now take questions from listeners.

[Operator:]

(Operator Instructions) We have a call from Liam Burke of Janney Montgomery Scott. Go ahead please.

[Liam Burke:]

Good morning, Daniel and good morning Frank.

[Daniel Jones:]

Hi Liam.

[Frank Bilban:]

Good morning.

[Liam Burke:]

Daniel if it's no secret that the construction markets are still having a very-very tough time out there. But you are able to show volume growth. Could you sort of give us some details on, is the market -- I kind of see that market share gains have some to do with. But could we just get some more details on that?

[Daniel Jones:]

Yeah, Liam, as we mentioned in the press release there was a competitor that was bought by another competitor in the first quarter and there was some inventory liquidation and so forth and I guess going into the second quarter was some pestering by a few folks that we compete with and then what end up happening that business I guess was divided out between the remaining competitors. We feel like I'm talking to the existing customer base that we sell through, they were able to pick up some market share. Therefore it was passed onto us. We did not go out and chase down a new customer service peak. We stuck with the guys that have been with us. But they were able to go out and actually get some business. And we picked some of tall out firm from that purchase. There is no question in the second quarter. But we have seen a few, small pockets of positive numbers which for us the different markets that we ship into, to round out that market share number.

[Liam Burke:]

Okay, great. And Frank, could you give us a cash flow from operations and a CapEx number plus? What are six months of the year, I am sorry.

[Frank Bilban:]

For the six months of the year, cash flow from operation was a negative $24.3 million and that was due to the increase sales, accounts receivable took up 49.3 million. So with out receivables we would have positive of cash flow and that's a good sign. We just waiting to collect the sales we made in Q2. CapEx for the six months to-date is $11.2 million.

[Liam Burke:]

Thank you.

[Frank Bilban:]

You're welcome.

[Operator:]

Alright. For the next question we have Michael Coven. Please go ahead.

[Michael Coven:]

Hi, good morning. Just can you crack out all the data points on the current mix, residential versus this commercial as well as if there was a LIFO adjustment in the quarter?

[Daniel Jones:]

You want the residential versus commercial mix for the quarter, Michael? Or the six months?

[Michael Coven:]

Either or both?

[Daniel Jones:]

For the second quarter the residential was just hair under 20% and that is also true for the six months, almost identical. LIFO for the quarter was a credit of $9.2 million which for the six months balances out the first quarter almost identically and we have a net credit of $700,000 for the six months. Almost nothing.

[Michael Coven:]

Okay. And one other piece, could you talk about, the portion of the SG&A increase that was due to the increase in the rept commissions given that top-line improvement?

[Daniel Jones:]

Sure. Again commissions for the quarter versus the second quarter of last year are up almost $2 million and again those commissions are a relatively stable percentage and to the extend that sales go up that will flow liner up with the sales on a liner fashion. And for the year to-date it's also up $2.5 million.

[Michael Coven:]

Okay, great. One more question, you've lost another competitor. How does -- how many are down to you now? And kind of what do you think the concentration of the industry is, Daniel that maybe the top three players in the industry?

[Daniel Jones:]

Well in better times, the smaller competitors are less effective in the market and have fewer successes. But the last year and a half to two years, some of those guys have become more of the competitor than we would like. Somebody irritating with their approach going to market so to speak. But today there is probably total of four or five competitors and I would say the top three of four account for around 75% maybe 80%.

[Michael Coven:]

Okay, great. Thank you.

[Operator:]

Our next question is from Robert Kelly. Go ahead please.

[Robert Kelly:]

Good morning.

[Daniel Jones:]

Hi Rob.

[Robert Kelly:]

On the sequential increase in line you saw into 2Q from 1Q, anyway to pass out the growth rates for commercial and residential?

[Frank Bilban:]

Sure. You're looking sequentially residential was up 32% and commercial was up about 37%. So they were pretty close for total of freight of the 34 we reported.

[Robert Kelly:]

And so now -- there is some point because they quantify. Is there some restock and share gains in 37% commercial or is that just snap pack of demand and it's a season that you saw in a way.

[Daniel Jones:]

There may have been some seasonal, Robert. The first quarter was pretty tough not only with the liquidation of the inventory of the competitor that was going out. But also weather related issues there were some areas that were hit pretty hard, with weather. But, copper was pretty volatile and when you have that type of volatility on the up side creating a trend you flush out some business so to speak and lot of the larger commercial jobs will come out that we're sitting and waiting for timing for whatever. But overall, it look like to us that a mixture of both, there wasn't any one specific area that out performed the other as far as where the share came from.

[Robert Kelly:]

Okay, great. Thanks guys.

[Daniel Jones:]

You're welcome.

[Operator:]

(Operator Instructions) We have a question from Brad Evans. Go ahead please.

[Brad Evans:]

Good morning gentlemen.

[Daniel Jones:]

Hi Brad.

[Frank Bilban:]

Hi Brad.

[Brad Evans:]

I am sorry if I missed it, but could you just give the sure thoughts as to the volume trends in July so far, have they continued the favorable positive year-over-year trends you saw in the quarter?

[Daniel Jones:]

It's tough to be that specific when we're talking only about the second quarter as far as going into the future. But July was okay, and again the market it self seems to be more disciplined than it was in the first quarter. There were several things contributing to that that we've mentioned. But overall as we sit now there is nothing really that's want to either extreme. It seems to be going on pretty well.

[Brad Evans:]

And just one more clarification, in terms of both volumes and spreads throughout the second quarter, did they improve each month?

[Frank Bilban:]

They actually did. It was pretty positive growth from one month to the next within the quarter.

[Brad Evans:]

Alright, great quarter. Thanks a lot.

[Daniel Jones:]

Thanks a lot Brad.

[Operator:]

(Operator Instructions) We have a question from Tom Bashir. Go ahead please. Tom Bashir of law of Securities. Go ahead please.

[Daniel Jones:]

It appears we may have lost Tom.

[Tom Bashir:]

I'm here, I'm here, do you hear me?

[Daniel Jones:]

Hello Tom.

[Tom Bashir:]

Yes, hi good morning gentlemen. Congratulations on a successful quarter. Are you seeing any favorable trends in municipal building, commercial building, school building that would tend to be optimistic?

[Daniel Jones:]

It was spread across the category really, Tom. There were hospitals and schools and universities and the few of the larger projects it had been sitting and lighting it seems to be in the technical field seems to be some expansions going on there. Again it was pretty evenly spread throughout. There wasn't really one sector that showed up more than the other.

[Tom Bashir:]

Very good. Thanks very much.

[Daniel Jones:]

Thanks Tom.

[Operator:]

(Operator Instructions). There are no more questions at this time.

[Daniel Jones:]

Super. Thank you guys very much and girls for the question and support. And we look forward to the next call. Thanks a lot Steve.